in prices

***Costs vary as production levels change

Phase 5: costs represent the lower limit of prices, the prices of substitute products
are
geographic prices_> the company decides what price to set depending on the
location
Elasticity changes from profile to profile and from segment to segment.
Saturn: a different car company
This brand of small cars had great success in the first years after the launch of its first car
(sedan type).
It was born as General Motors' response to the superiority of Japanese companies in the
small car market.

The American Small Car Market

The American automobile market was recovering from a long decline that coincided with the
country's economic recession. Automobile sales are expected to grow by 3% annually until
1997, caused primarily by pent-up demand.
Since there are low interest rates, the market was more affordable.
The small car segment will represent 25% of automobile sales in 1997. Several factors
contributed to the increase in importance of this category:
First:
-Small car buyers tended to be more sensitive to changes in the economy because of
their age and income.
-For 30% it was their first new car
-Others bought small models as a second car, for themselves or their children.
Second:
-Prices in all car sectors had increased faster than household incomes, therefore it was
expected that customers who normally bought cars in the mid-size or sports segments would
choose small car models due to price
Third:
-Government safety and emissions standards would raise the prices of all cars by increasing
the cost of producing each car in 1997.

History
In the 1970s and early 1980s, the fixed costs to design a new car did not vary much
from one segment to another , however, since they had low prices , small cars were less
profitable ; Furthermore, they often did not want to promote them because these models
could cannibalize sales of more profitable product segments.
The increase in gasoline prices in 1973 increased the demand for small cars,
customers began to buy models imported from Japan (reliable and low-consumption
models (gasoline)), because in America there were few alternatives and they presented
problems (fuel tank). gasoline too close to the rear bumper, in the event of a crash it could
cause a fire, or engine or brake problems)
In 1981, the import of cars from Japan had become the main cause of the US trade
deficit , Japanese car companies were encouraged to manufacture cars in the US.
For most of the 1980s, American companies considered small cars “a necessary evil.”
To reduce development costs as much as possible, American companies marketed a
product for approximately 8 years before making any modifications, while in Japan they did
so every 4-5 years, and made other changes between product cycles to accelerate product
improvements. reliability. The American models tended to have more defects, and the
Japanese ones attracted attention with new features and details.

Purchase Criteria
Small car customers were primarily looking for an affordable means of
transportation .
* Domestic car buyers, priorities in purchasing decision cost factors such as car price ,
gasoline consumption , warranty coverage and foreseeable maintenance expenses .
* Import car buyers pay more attention to quality , reliability and durability (C/F/D).
Most buyers wanted to buy larger cars but couldn't because of their budget, so in
the 90s manufacturers offered small cars with features of the more expensive models.
Many customers dislike aggressive sales tactics and having to negotiate complementary
accessories and price.
Manufacturers introduced no-rebate pricing (to reduce complaints), dealerships
preferred a shift toward leasing (it reduced monthly payments, making buyers less likely
to discuss the price, and reinforced the bond with the customer through routine service
calls, as they would be in contact throughout the lease term).

Distribution
Manufacturers sold most of their cars through franchised dealerships. Most had stock
of the most requested models , because customers preferred fast delivery . The
strongest sales periods for car dealers were between April and September.
Manufacturers and dealers referred to variations in sales as one of the biggest
impediments to selling at a single price. Marketing managers set prices before
launching the year's model, but they could not predict mid-year demand changes or
competitors' price changes.
When purchasing levels deviated from forecasts, companies with a no-rebate pricing policy
could not raise or lower their prices without weakening confidence in the single-price system.
Manufacturers had to supervise dealers, who could cut prices to attract sales.
Almost all dealerships sold more than one brand at the same time (to spread costs and to
offer a wide selection of popular brands).

Production
Those at the factory suggested changes to simplify production, and members of the
marketing groups suggested features to differentiate the car from its competitors.
The assembly line production system dominated manufacturing. Because of economies of
scale and high transportation costs, car manufacturers produced their own engines,
transmissions, steel frames and exterior panels, while lower-value components came from
different suppliers.
Comparisons between various manufacturing practices revealed that Japanese
manufacturers had an advantage due to their strong relationships with suppliers .
( They reduced the number and complexity of parts so that there was less possibility of error
on the assembly line and also used the “Just In Time” JIT system that cut inventory
costs . ) American manufacturers tried to copy these practices.
 Labor Relations
The UAW union had had many conflicts with the “Big 3.” During the 1970s,
manufacturers claimed that they could not make competitive cars due to high
labor costs . The solution was “go down the line and cut.” The big three suffered
losses, and many UAW members lost their jobs. Instead, Japanese manufacturers
introduced management practices that were based more on collaboration, giving
importance to training and encouraging workers to solve problems on the shop floor ( a
new approach that translated into much higher performance). Then American
manufacturers began to adopt better practices from their foreign competitors.
Productivity measures, such as labor hours per unit and defects per car, varied greatly
from plant to plant.

Competitors (ANNEX 4 PAGE 21)

More than 15 companies made small cars, but buyers narrowed their choice to six
models, and only three were seriously considered. Saturn customers typically
compared their models to the Honda Civic and Toyota Corolla.

1)Honda : Since the early 1980s, Honda set the standard for small and mid-size cars in the
United States. This company combined modern design with functional features that
appealed to American baby boomers ( those born after World War II). However, in 1994
Honda had to fight to maintain its leadership. According to a company executive, "Honda
has been the leader in automobile quality ." Unit sales in the United States fell around
1993. This company typically hired young designers and gave them freedom to
create the type of cars they would like to drive. Its development teams also followed
“value engineering,” a car design process to reduce production costs . Analysts
attributed his skill in this field to cross-functional training and strong relationships with
suppliers.
Honda's small car model, the Civic , was a star of this brand's portfolio.
One competitor believed that Honda had found a way to cut production costs on the new
platform by using fewer parts and reducing assembly time. Honda was the first
Japanese car manufacturer to set up a plant in the United States . In 1994, this
company had two car plants in Ohio and one in Ontario. Employing local workers with
minimal factory experience, Honda, without layoffs, took advantage of the recent reduction in
production to train workers and make small changes in the plant.

2) Toyota: Japan's largest manufacturer. Its models were very reliable, but they
lacked the style of competing brands. «It is not normal to see Toyota do something that
breaks the mold, but they know how to evolve better than anyone »7. Toyota developed
the principles of its lean manufacturing system in the late 1940s and early 1950s; Toyota
began exporting cars to the United States in 1957.

The conservatism of this company also guided its strategic actions. Toyota
began manufacturing in the United States through a joint venture with
GM, rather than building its own plant as Honda did . He later built
factories in Georgetown, Kentucky and Cambridge, Ontario. Furthermore, Toyota
seemed determined not to grow too quickly.
 Toyota raised prices greatly , placing its cars among the most expensive in
their segments. As customers distanced themselves from them, dealers
reacted by offering more lease-purchase contracts to take advantage of high sales
values for used Toyota cars. In the long term, the company planned to compete
by reducing manufacturing costs.
The Corolla, Toyota's flagship small car model , epitomized Toyota's pricing
problems . It had been redesigned with a wider wheel base and included
sophisticated technology. However, the base price had increased by 25% in just
two years.

3)Ford: Financial problems in the early 1980s forced Ford to carry out a restructuring in
which 14 assembly plants were closed and many employees lost their jobs . Analysts
attributed Ford's subsequent improvement to its commitment to quality . Following the
example of the Japanese, the company simplified production processes and encouraged
employee participation in problem solving. In product development, Ford design teams used
components from competing cars as benchmarks and attempted to match or improve each
feature. The Ford Taurus, the first midsize car , had been a sales leader during two major
design cycles. Ford supplemented the Taurus with a line of larger cars, trucks, and sport
utility vehicles . As baby boomers ' tastes shifted toward those categories, Ford's share of
the American car and light truck market increased by two percentage points in the 1990s.
Industry observers had less confidence in the company's smaller models, although
dealers maintained sales at low prices. From 1981 to 1991, Ford provided more than $4
billion in discounts and other sales aids . This car was facelifted in 1991, but still didn't
match the appeal or features of the segment leaders. Ford tested selling at a single price .

4)Other: The most recent entry into the small car market, Chrysler's Neon, caught the
industry's attention in 1994, praised for how well it performed, its spacious interior, and the
distinctiveness of its line . Chrysler, the third-largest manufacturer in the United States, did not
have a reputation for innovation, but it placed importance on rapid product development .

GM's Chevrolet Cavalier was formally classified in the lower midsize segment, but it
attracted customers from the small car market.

small cars
“GM got used to defining automotive trends, and not adapting to
them . ” For this reason, the appearance of small cars was a challenge , GM faced
the first small models but the results were disastrous, two years later, most of the
cars had to return to the workshop to make repairs that affect their safety, it recently
recovered some credibility in 1976 with the Chevrolete chevette. Roger Smith became
president in 1981 and sought solutions to improve GM's position in the small car
market. (1) GM sold small cars from Isuzu (Japanese manufacturer) under the Chevrolet
Geo brand. Smith subsequently began looking for a larger Japanese partner, first starting
talks with Honda, but ultimately settling on Toyota. Together with Toyota they formed (2)
Nummi , Toyota contributed its management knowledge (+cash) and GM contributed a
disused factory (+cash) and had the right to observe the Japanese company's methods to
manage its American workers. (NOT IT'S COBRANDING)
The formation of the joint venture sparked negative reactions within GM and the American
auto industry in general, while the UAW was eager to create jobs for union workers who had
been laid off.
(3) The Saturn project was Smith's third major initiative in the small car market. The
project gained momentum causing UWA managers and representatives from across the
company to look for new ways to manufacture in the US.
GM would later create Saturn as an independent operating unit.

The Saturn project

Several executives argued that the company needed to understand the process of developing and
manufacturing small cars to remain competitive in larger car markets. It was not just the
design, engineering and manufacturing that had to be changed, but the entire way of
running the business »
In 1985, Roger Smith announced that Saturn would be GM's newest auto division since Chevrolet was
formed in 1918. Analysts applauded Smith's idea of starting from scratch. Almost everyone
assumed that the new Saturn plant, and a more flexible contract with the UAW, would allow
GM to reduce the number of labor hours per car by almost 50%

Saturn Mission and Values

*Saturn Mission:
1) market vehicles developed and manufactured in the United States that
are world leaders in quality, cost and customer satisfaction, through the
integration of people, technology and business systems
2) transfer knowledge, technology and experience to all General Motors.
*Core values:

· Dedication to customer enthusiasm

· for when it will be Dedication to excellence

· Teamwork

· Trust in and respect for the individual

· Continuous improvement

Continuous design improvement

During the design phases, Saturn engineers had Japanese cars as their own vehicles, so
they could more easily match the look and feel of leading import cars.

Reviewers were surprised by this car's unique technology. The original models had a
lightweight aluminum engine and transmission that reduced fuel consumption , while
offering performance comparable to that of a larger car. A steel armor gave greater
security. The plastic panels were resistant, but if they broke, the repair was not expensive.
These features reduced costs for the car owner and contributed to the “best buy” rating this
car received in consumer guides.
Focusing on the small car market.
Several analysts criticized Saturn because it had delayed production of a new small car platform
for the 1995 model year. They said the competition had already matched or surpassed the
Saturn's advantages in the previous four years. Saturn's vice president of engineering, Ron Rogers,
explained that it would be risky to change the platform because Saturn only had one factory.

Prices without discount, and low prices

Sell the company with the car

The company's story should be an important part of the marketing message. All the ads ended with
the phrase: "A different company, a different car."
Saturn's sales process was very different from that typical in the automobile industry. Sales
representatives introduced themselves by asking potential customers about their transportation needs,
also emphasizing the “no markdown” pricing policy.
The sales process was the first step to create intangible value with the customer. The company's
extra efforts helped turn some potential problems into opportunities to demonstrate its
commitment to customers. The company's intangible value placed it at the top of the list in JD's
customer satisfaction studies. Power & Associates, and awarded it consistent “Best Buy” recognition
in consumer magazines.
Almost half of the people who went to dealerships for the first time did so on the
recommendation of a friend or family member .

IN DISTRIBUTION_> REACH AND CONTROL, IF I HAVE MORE CONTROL THERE IS

LESS NUMBER OF INTERMEDIARIES, I CAN CONTROL MY VALUE PROPOSITION,
BUT THE PROBLEM IS THAT I LOSE REACH IF I CAN'T REACH EVERYWHERE,
Relationships with retailers
Saturn divided the United States into a fixed number of sales territories, rather than
following industry standards for dealerships. E ach Saturn dealer received a territory
and could install as many showrooms and sales rooms as were necessary to cover
the area. The typical Saturn retailer had two stores to meet local demand.
MANUFACTURER -> dealers => final consumer (level 1, an intermediary), 1 single retailer,
sacrifice reach, but achieves this positioning through its differentiating capabilities,
generating this short channel with a lot of control
Saturn's competitors had more knowledge.
The cost of building a Saturn outlet is $2.5 million, compared to the average $1.5 million for
other dealerships. The company justified this higher initial investment by offering higher
gross margins on each sale. One retailer estimated his operation had margins of about
$1,600 per sale (before a charge to recover fixed investment), compared with $1,200-$1,300
for Toyota and Honda dealers. Saturn salespeople also sold higher volumes of cars than their
competitors.
Retailers responded to Saturn's philosophy by sacrificing short-term profits to help the
company. For example, when Saturn explained that it needed a larger price increase to meet its
profitability goals, some retailers offered the suggestion that Saturn cut dealer margins to reduce the
increase in sales prices.
The company had decided that the hotel sector was the best customer service model.
Therefore, Saturn encouraged retailers to hire people with personal qualities similar to those of
hotel receptionists, rather than looking for specific sales backgrounds. Dealers gave Saturn more
points than other automakers for service, sales support, and product quality, although competition
was gaining ground in some areas.

******In terms of channels, the channels are how we

connect with the consumer, there is a value chain that starts
from the suppliers, the channel can be deeper or shallower, if
I have many I lose control but I have more reach , or a
shorter channel like that of Saturn direct sales, which allows
me to have greater control over what I am selling, channel
design, how are we going to enhance those things that
generate value for customers, it was not the variety, because
in saturn there is a mixture of a single product,

Regarding the Analysis of the level of services desired

by customers (To design the marketing channel, professionals
must know the service levels desired by the target market.
The channels produce five levels of service:) comfort at the
points of sale was important (It is the degree of ease of
purchase that the channel offers to consumers), waiting times
(in Saturn if a model was not available in its dealership They
could check right there at which dealership if the car they
wanted was available) and the help services

quality

security

satisfaction strategy

Customer tracking
“eliminate paperwork”->information systems (MIS) streamlined orders and reduced the number of
forms needed to make a sale.
The company had also built a database with the characteristics of Saturn buyers and
potential customers.
From the first sales interview, retailers profiled a person's approximate age and income,
hobbies, and car preferences.
Managers used this information to create marketing campaigns, give design ideas, and sell other cars
to people who already had one.
PRICES
DIRECT AND CLOSE COMMUNICATION
QUALITY, GUARANTEE
 The Saturn Complex in Spring Hill
The Saturn production facility was designed to be a facility distinct from other auto factories. Early
Saturn prototypes were developed in close coordination with the design and layout of the factory. For
example, when GM decided to reduce annual production from the original goal of 500,000 cars,
engineers adapted the complex to produce more plastic components. Plastic offered cost advantages
over steel at lower levels of production. The company also invested in an innovative method of
manufacturing engine components, known as lost foam molding. This process reduced the minimum
efficient scale for producing metal components and gave the company flexibility to develop aluminum
engine blocks and transmission parts. Lost foam molding had never been used in the small car
segment, although Toyota had adopted this process for its luxury Lexus models.
Team Building at Spring Hill
Charter team member (CTM).
In 1994, Saturn had three main business units: a manufacturing unit, an engineering and design unit,
and a marketing, sales and service unit.

Saturn supported the decision-making process with an online cost accounting system
accessible to all employees. Terminals located in the workshop displayed daily
manufacturing costs and other production statistics. The system also transformed all
expenses into costs per car, so teams could evaluate the impact of various decisions. Teams
were less likely to add costs if they were couched in these terms. For example, employees
were likely to reject a proposal to put more lights on the company's baseball field if they
knew that this project would cost 12 cents per car.